Coffee heat rising

Dear Credit Union: What ARE you thinking?

This morning I finally bestirred myself to open the stacks and stacks of not-quite-junk-mail, pesty notices, Important Tax Information, and statements and bills that have to be attended to, sooner or later. And what should pop out of an envelope from the credit union but not one, not two, but THREE negotiable (-looking) blank checks in my name, with my  credit union account number them, along with an invite to hurry right out and cash them.


Turns out they’re an offer to fork over chunks of cash from my line of credit.

Yes. I have an old, unused line of credit with that august institution, one I took out when I was doing some renovations to my previous house…from which I moved some 16 years ago. I haven’t borrowed on that account in a good 20 years, but apparently it’s still very much alive. And the worthies of the credit union very much wish I would please rack up some more interest on a nice fat loan.

The things looked just like checks for an ordinary checking account. The sales pitch: fill these out in the amount you want, take it in, and cash it. Soooo simple!

HOLY ess-aitch-ai! You sent that to the mail thieves and the trash scavengers, dear Credit Union?

They may not be truly negotiable. But they sure look like they are. All it would take is a smart trash scavenger (or his boss) to engineer some fake ID with my name and address on it, hand it to his girlfriend, and send her in with a five- or ten-thousand-dollar check to manufacture a real nasty surprise for me.

Honest to God. What possesses people?

So I had to take a break from ripping open envelopes, filing, and trashing to send a written request to those chuckleheads: please do not mail me anything that looks even faintly like a negotiable instrument.

Into the shredder the things went. But…what an annoyance!

Short- and Long-Term Consequences of Debt to Consider

Debt isn’t inherently negative. The option to pay using a credit card or take out a loan can enable consumers to make big-ticket purchases they otherwise couldn’t afford outright. But debt can also become a personal finance problem, as many Americans can attest. CNBC reports that nearly half (43 percent) of U.S. consumers have carried a credit card balance for two years or more. And the average American household with credit card debt owes nearly $17,000. These statistics illustrate how commonplace debt is—and also how challenging it can be to eliminate in a timely manner.

When you consider the short- and long-term consequences of debt, the importance of figuring out how to pay down debt becomes apparent. Here are just four side effects of living with significant debt.

 Negative Emotions

The impact of debt can extend beyond financial health alone. One study of nearly 34,000 participants published in Clinical Psychology Review found “people who are in debt are three times more likely to have a mental health issue” than those who are not.

Many people find debt to be a stressful state—and understandably so. It can be tough to relax when you’re trying to figure out how you’re going to come up with your next credit card payment. Money-related worries can easily interfere with sleep and work. Debt can even put a strain on interpersonal relationships, often because consumers with debt feel a sense of shame.

Debt denial occurs when people try to distance themselves from negative feelings by ignoring their financial reality. As difficult as it is, it’s important to face debt head on to alleviate the root cause of these negative emotions.

 Collection Notices

After a few months of nonpayment, creditors will turn your debts over to collection agencies. Representatives from these companies will reach out, often repeatedly, to solicit repayment. Receiving these notices can be stressful. And though the only way to stop them once and for all is to eliminate debt, consumers should be aware of their rights. As the Consumer Financial Protection Bureau outlines, debt collectors may not:

  • Contact you before 8 a.m. or after 9 p.m.
  • Contact you at work if you tell them this is not allowed.
  • Harass you or anyone you know.
  • Contact you if they know you have an attorney representing you.

If paying your debt in full seems unlikely at this point, there are options to explore. Creditors and debt collection agencies alike would rather receive something than nothing at all. For this reason, debt settlement can be an effective strategy for consumers already receiving notices.

Here’s how partnering with a debt settlement organization works: Consumers pay into a dedicated account each month. When their balance reaches a certain threshold, trained negotiators reach out to creditors, attempting to settle credit card debt for less than the original balance. While this does not stop collection notices—as you cease repaying debts for a period of time—it can ultimately zero out balances if a settlement is reached.

The key is making sure you enroll in a reputable program if this is the route you choose to pursue. Say, through online research, you find Freedom Debt Relief to be an industry leader in successful debt settlement. It’s still your responsibility then to look up Freedom Debt Relief reviews to see what real clients are saying about their experience. 

Poor Credit

Sustained revolving debt, like credit card debt, can damage your credit score. Why? Well, the amount you owe accounts for approximately 30 percent of your FICO score. 

Reduced Savings

Last but not least, carrying debt tends to diminish the amount you can contribute toward savings. The less you have stashed away in your emergency, savings and retirement accounts, the more precarious your overall financial situation becomes, especially if you ever lose your primary source of income.

These short- and long-term consequences of debt illustrate why it’s so important to work toward actively eliminating debt for your own financial well-being.

Back to Personal Finance: The 2018 Budget

So it’s time for the annual Required Minimum Withdrawal (RMD) from the big IRA, which resides with Fidelity. Actually, I had to accelerate the drawdown by a few weeks, because I’m running out of money…waiting for the scheduled drawdown date in mid-September risked bouncing utility and car loan payments.

The car loan is the problem. Last fall when I bought the car, I put $4,000 down on it, which I could afford. What I couldn’t afford is the $400-a-month payments over the next five years.

Net 2018 annual income, based on the RMD and Social Security, will be $35,657. Net 2018 expenses, if they remain the same as they have been over the past 12 months, will be $36,899: a fine shortfall.

Payments are $194 twice a month: almost $400 a month, except…they’re set up to go out biweekly, meaning there are two extra payments a year, for a total of almost $5,044 a year.

I could probably cut the amount I spend by a couple hundred bucks a month: lay off Gerardo; buy cheaper dog food (or adopt out one of the dogs); eat more beans, rice, and pasta; grow some vegetables; stay out of Costco and cancel the Costco membership; cancel the Amazon Prime membership. That still wouldn’t make up the shortfall.

And…y’know…for reasons unknown, no substantial extraordinary costs have happened this year.

So even if I could cut $400 a month from the budget, it still wouldn’t cover surprise medical bills, dental bills, house repairs, car repairs, clothing, vet bills, and God only knows what else.

Somehow, then, I’ve got to get rid of that shortfall…and that somehow would be by getting rid of the auto loan.

One is not limited to the legally mandated RMD…one could (after all) draw down more than that.

Wonder-Accountant, however, pointed out that The Copyeditor’s Desk, an S-corporation, owes me money from a series of loans to it. If I drew a fair amount of it, I’d have to draw down that much left from investments. And the boss man at Stellar Financial pointed out that I could take the remaining cash out of an old Roth IRA. It would mean that much less would be earning tax-free…but the two strategies taken together would raise enough to get rid of the burdensome loan without incurring much tax liability.

Several expensive upkeep items are simmering on the burner…

The house needs to be painted: got an estimate of $3,000, which is probably about right.
A tooth hurts mysteriously. Whenever we figure out what’s causing the pain, that’s likely to rack up a stiff bill: $1,000+++
The pool still needs to be replastered and the pump replaced: $4,000 to $6,000

Holy mackerel. Maybe I should draw down an extra three grand for the painter now, while shares are still worth something; then pay off the car, thereby leaving enough to pay for one other major expense this year.

If you have to sell stocks to unload a damn debt, this is the time to do it. The stock market isn’t going to stay up forever. Even under the best of circumstances, what goes up must come down. And we are decidedly not in the best of circumstances. Sooner or later, having elected a mentally unbalanced bully to the highest office in the land is going to come back to bite us all…


How Can You Improve Your Credit Score?

When your credit score isn’t where you want it to be, there are a couple of things that you can do about it. It is possible to repair bad credit, but it takes time. While there is no quick fix to repairing a damaged credit score, it is entirely possible to set up a credit management plan. Fly-by-night promises of repairing a credit score should be avoided. The best way to manage your credit is by behaving in a responsible fashion. Even before you can improve your score, it’s important to know what your credit score is.

This is your point of departure: check your credit reports at each of the three credit reporting agencies.

In the US, Federal law states that you are entitled to one free credit report from each agency per year. The three credit agencies include Equifax, TransUnion, and Experian. Once you know what your credit score is, you can take the necessary steps to correct it. When you have your credit report in hand, you should go through it with a fine-tooth comb to pick up on any anomalies, or inaccuracies. If you spot anything that is incorrect, report it immediately.

Making payments in a timely fashion is the first step toward repairing credit. Credit scores are calculated by adding up a number of factors. These include the percentage of available credit used (the lower the better), your payment history (consistent payments are best), the amount of new accounts you have opened up (the fewer the better), different types of credit available to you, and the length of your credit history (the longer the better).

Of all the factors that determine a credit score, your payment history is the most important. If you have a history of delinquency, start to make regular payments to avoid collections agencies from reporting you. Your FICO score will increase over time when you make regular payments. Many folks are unaware that they can contact creditors to work out more favourable repayment terms if it becomes difficult pay off a credit card. Credit counseling services will not adversely affect your credit score.

Should you open more accounts to improve your credit score or close unused accounts? When calculating credit scores, everything is done with ratios. Some people think that if you open additional lines of credit, you can increase your credit score by having a lower credit usage ratio. This could work against you. Much the same is true of closing unused lines of credit. FICO scores are carefully calculated, and intentional manipulation of ratios by opening/closing accounts will not always have the desired result.

The best way to manage debt is to pay it off. It is unwise to open multiple accounts at the same time, in the hopes of increasing your available lines of credit and boosting your credit score. Remember that the average age of your accounts will drop if you open multiple new accounts. This will cause your credit score to drop too.

Summary: Repairing Your Credit Score

Good credit scores allow you to enjoy favorable credit terms. Lenders often only consider one number when they are deciding about advancing a loan to you, and that’s your credit score. There are many advantages to a strong credit score, including lower interest rates, a high credit limit, being considered for top-paying positions, and being granted credit facilities for a mortgage or an automobile.

Since your credit score is comprised of five unique elements, it’s imperative to take the time to optimize each aspect of your credit score. You can check your credit score at any time, and it’s not much different to the credit scores that lenders will see when they run a search on you. Many banks and credit card companies offer complimentary credit reports to clients.

Banner image of the day: DepositPhotos, © ivelin

All Loans Are Not Created Equally

The New Ride of Funny's Dreams. ca 2013: $17,500
The New Ride of Funny’s Dreams. ca. 2013: $17,500…plus interest

It doesn’t matter if you’re Donald Trump, all of us have to borrow money sooner or later. There are a bunch of online personal finance gurus out there who might tell you different, but there just isn’t a way to get through life without borrowing, unless you keep your ambitions well beneath your earnings. That may sound like something that is very possible, but is it really? We’re talking about putting off a home or auto loan, potentially even going without higher education. Not many people can afford to pay for those things out of pocket, so borrowing would be necessary. Are you really able to skip out on those things, just so you don’t have to borrow money?

I’m going to guess not. If you’ve accepted borrowing as a part of life, at this point, it’s important not to just start borrowing willy nilly. Not all loans are created equally. There are multiple aspects to consider for each loan, even beyond the main details that we always think about. Here are some things to consider.

Price. There are people who have loans who don’t even understand what an APR is. An APR is Annual Percentage Rate. That’s the kind of name that doesn’t tell you anything about the thing it represents, so we’ll dig a little deeper. The APR of your loan is, basically, the price that you pay for borrowing that money. It’s a combination of interest and fees. Interest is a specific percentage rate that you’ll pay each year, based on the base amount of money you are borrowing. There will also be fees associated with each loan, for originating the loan, for processing, for whatever the lender dreams up.

These loans can have APR of anywhere between 1% to 35%, sometimes more. The latter is extremely high, but there are other loans that are meant to have extremely short duration, and carry WAY higher interest and fees to compensate. has a bunch of examples you can check out, and you can get a quote if you like. It’s best not to take on loans that have high interest, as these will be more expensive in the long run, and will give you a higher chance of defaulting. If you default, you’ll likely incur way more interest and fees in the long term. You should also not take on loans that penalize you for early repayment. This sometimes happens, when a shady company wants to lock their customers in for the long (Expensive) haul.

Duration. This is the other major factor when considering a loan. How long will you have to pay off the loan? As mentioned above, is there any penalty for early repayment? There are tons of loan terms, from a week to thirty or sixty years. Some businesses take on loans which go farther than that, and world governments can pay in near perpetuity.

These are the two factors to consider when taking on a loan. All terms associated with your loan will pertain to either Price or Time, so if you’re having trouble understanding said terms, figure out which category each belongs to, then work out what it’s talking about from there.

Image: OSX – Public Domain

Important Steps to Improve your Finances

The level of credit card debt in the USA is worrying to say the least. It is at its highest for years and remembering the misery of the years of recession it is quite surprising that people are apparently comfortable to carry such debt, especially when real estate values have lost some years of growth. Cards are convenient and when used properly also provide rewards to encourage loyalty but the level of interest charged on balances that remain outstanding at the month end questions how sensible consumers are with their use.

Worrying Figures

As the recession was coming to an end the Federal Reserve Bank of Boston suggested that over 70% of adults had at least one credit card. In 2014 figures show that the average American has 2.6 credit cards which is actually down from the pre-recession average. Almost a third have 5 cards or more. Even though the average number of cards has dropped that does not mean that debt has fallen as well. In the final quarter of 2015 the average card debt per household was creeping towards $8,000, the highest level since 2009 when the effects of recession had cut people’s access to other forms of credit.

If you read this and see your situation as being out of control or reaching that point,  you need to give your position some thought. The first quarter of any year when tax refunds are available often paints a better picture, but then through the next three quarters debt tends to rise. Mid-year holidays and Christmas spending are just two of the reasons card debt rises in the third and fourth quarter. The overall total debt in the final quarter of 2015 incidentally was $52.4 billion. If there is any good news, it is that high as the interest rate charged is at least general interest rates remain low. Indeed, those keen to sort out their debt can get very competitive personal loans to pay off their card debt and merely pay back the installments for the full term of the loan.

Take Action

If you are beginning to worry, then you need to curb your spending in order that you are not overspending. If you clear your card debt with a loan you cannot immediately begin to build up your debt once again. You should only spend when you can pay the full statement amount in full each month. That requires self-discipline and a budget that ensures your finances show a surplus each month, the larger the better.

You need a budget written down that shows all your financial activity. That means even your small dollar spending each day, because over a month that adds up. You can anticipate when your regular bills are going to arrive and therefore aim to get your cash flow in order so that you can meet them. Your budget needs to be under review constantly so it always reflects what is actually happening.

  • Your credit score should be important to you. It is something that potential employers may even refer to if you are applying for a job. Your score reflects your history as well as the available credit you have and of course your existing debt.
  • Covering your monthly expenses must be your aim as a minimum. Even if at this stage you have no emergency fund you cannot avoid financial problems if you are overspending. You should look to see if there are some obvious savings that you can make such as cheaper utilities or insurance. Those savings may help towards an emergency fund.
  • If you need and want a loan then look at interest rates and apply accordingly.

Debt does not disappear if you ignore it. In some cases you can negotiate some relief; creditors may feel that the fact that you are prepared to talk means you are taking your finances seriously. The only time that a credit card can help your finances is if it is used sensibly. That means not spending on something you cannot afford even if it appears a bargain. By the time you have paid for it in full the interest that will have been applied is actually the true picture.

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